Juice WORLD Company makes and sells gourmet efficient fruit peeler system. Which of the followin O The per-year power cost of the new system O The installation cost of the new system O The per year power cost of the current system O The original price of the current system O The capacity of the current freezer system
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- Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data warehouse? What is the expected annual cost associated with that recommendation? Construct a risk profile for the optimal decision in part (a). What is the probability of the cost exceeding $700,000?Southland Corporation’s decision to produce a new line of recreational products resulted in the need to construct either a small plant or a large plant. The best selection of plant size depends on how the marketplace reacts to the new product line. To conduct an analysis, marketing management has decided to view the possible long-run demand as low, medium, or high. The following payoff table shows the projected profit in millions of dollars: What is the decision to be made, and what is the chance event for Southland’s problem? Construct a decision tree. Recommend a decision based on the use of the optimistic, conservative, and minimax regret approaches.Certain production equipment used by Dayton Mechanical has become obsolete relative to current technology. The company is considering whether it should keep or replace its existing equipment. To aid in this decision, the company’s controller gathered the following data: (See attached) c. What is the total dollar amount of all relevant costs to the equipment replacement decision. $______ d. What is the total dollar amount of the opportunity costs associated with the alternative of keeping the old equipment? $______
- The Gizmo Manufacturing Company is considering making and selling a new product. The following data have been provided to management: Some managers are reluctant to launch a new product because of the uncertainty of future sales. To provide management with information that might make it easier to draw the correct conclusion, a break-even analysis will be performed for annual sales required to economically justify introducing the new product.What is the break-even value of units sold annually?Analysis of a replacement project At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. In this case, the company will need to perform a replacement analysis to determine which alternative is the best financial decision for the company. Consider the case of LoRusso Company: The managers of LoRusso Company are considering replacing an existing piece of equipment, and have collected the following information: • The new piece of equipment will have a cost of $600,000, and it will be depreciated on a straight-line basis over a period of five years (years 1–5). • The old machine is also being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and three more years of depreciation left ($50,000 per year). • The new equipment will have a salvage value of $0 at the end of the project's life (year 5). The old machine has a current salvage value (at year 0) of…A rental car company bought a new fleet of midsize cars and sold off its old midsize cars because they had too many miles on them. Which type of project would this be considered? An expansion project A replacement project What are sunk costs? Acme Manufacturing owns a warehouse that it is not currently using. It could sell the warehouse for $300,000 or use he warehouse in a new project. Should Acme Manufacturing include the value of the warehouse as part of the initial nvestment in the new project or treat the value of the warehouse as a sunk cost? Yes, include the value of the warehouse as part of the initial investment in the new project No, treat the value of the warehouse as a sunk cost The role of externalities A large soft-drink company currently produces regular cola and diet cola. It is considering introducing a new soft drink that tastes like regular cola but has zero calories like the diet cola. The new zero-calorie drink that tastes like egular cola is most likely to produce…
- “That old equipment for producing carburetors is worn out,” said Bill Seebach, president of Hondrich Company. “We need to make a decision quickly.” The company is trying to decide whether it should rent new equipment and continue to make its carburetors internally or whether it should discontinue production of its carburetors and purchase them from an outside supplier. The alternatives follow: Alternative 1: Rent new equipment for producing the carburetors for $189,000 per year. Alternative 2: Purchase carburetors from an outside supplier for $20.25 each. Hondrich Company’s costs per unit of producing the carburetors internally (with the old equipment) are given below. These costs are based on a current activity level of 30,000 units per year: Direct materials $ 5.70 Direct labour 8.00 Variable overhead 2.40 Fixed overhead ($3.15 supervision, $1.80 depreciation, and $4.00 general company overhead) 8.95 Total cost per…Den-Tex Company is evaluating a proposal to replace its HID (high intensity discharge) lighting with LED (light emitting diode) lighting throughout its warehouse. LED lighting consumes less power and lasts longer than HID lighting for similar performance. The following information was developed: a. Determine the investment cost for replacing the 700 fixtures. b. Determine the annual utility cost savings from employing the new energy solution. c. Should the proposal be accepted? Evaluate the proposal using net present value, assuming a 15-year life and 8% minimum rate of return. (Present value factors are available in Appendix A.)Mallette Manufacturing, Inc., produces washing machines, dryers, and dishwashers. Because of increasing competition, Mallette is considering investing in an automated manufacturing system. Since competition is most keen for dishwashers, the production process for this line has been selected for initial evaluation. The automated system for the dishwasher line would replace an existing system (purchased one year ago for 6 million). Although the existing system will be fully depreciated in nine years, it is expected to last another 10 years. The automated system would also have a useful life of 10 years. The existing system is capable of producing 100,000 dishwashers per year. Sales and production data using the existing system are provided by the Accounting Department: All cash expenses with the exception of depreciation, which is 6 per unit. The existing equipment is being depreciated using straight-line with no salvage value considered. The automated system will cost 34 million to purchase, plus an estimated 20 million in software and implementation. (Assume that all investment outlays occur at the beginning of the first year.) If the automated equipment is purchased, the old equipment can be sold for 3 million. The automated system will require fewer parts for production and will produce with less waste. Because of this, the direct material cost per unit will be reduced by 25 percent. Automation will also require fewer support activities, and as a consequence, volume-related overhead will be reduced by 4 per unit and direct fixed overhead (other than depreciation) by 17 per unit. Direct labor is reduced by 60 percent. Assume, for simplicity, that the new investment will be depreciated on a pure straight-line basis for tax purposes with no salvage value. Ignore the half-life convention. The firms cost of capital is 12 percent, but management chooses to use 20 percent as the required rate of return for evaluation of investments. The combined federal and state tax rate is 40 percent. Required: 1. Compute the net present value for the old system and the automated system. Which system would the company choose? 2. Repeat the net present value analysis of Requirement 1, using 12 percent as the discount rate. 3. Upon seeing the projected sales for the old system, the marketing manager commented: Sales of 100,000 units per year cannot be maintained in the current competitive environment for more than one year unless we buy the automated system. The automated system will allow us to compete on the basis of quality and lead time. If we keep the old system, our sales will drop by 10,000 units per year. Repeat the net present value analysis, using this new information and a 12 percent discount rate. 4. An industrial engineer for Mallette noticed that salvage value for the automated equipment had not been included in the analysis. He estimated that the equipment could be sold for 4 million at the end of 10 years. He also estimated that the equipment of the old system would have no salvage value at the end of 10 years. Repeat the net present value analysis using this information, the information in Requirement 3, and a 12 percent discount rate. 5. Given the outcomes of the previous four requirements, comment on the importance of providing accurate inputs for assessing investments in automated manufacturing systems.
- This-Test-Is-a-Breeze, Inc. owns a warehouse in Wilmington, DE. The company has decided to use the warehouse for the production of plastic polymers. To do so the company will forgo the option of renting the warehouse to a third party, which would have generated $50,000 of annual cash inflow. The $50,000 that the company is forgoing to pursue another investment is: Sunk Cost Opportunity Cost Erosion Cost Variable CostThe Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives are (1) a conveyor system with a high initial cost but low annual operating costs and (2) several forklift trucks, which cost less but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 7%, and the projects' expected net costs are listed in the following table: Expected Net Cost Year Conveyor Forklift 0 -$500,000 -$200,000 1 -120,000 -160,000 2 -120,000 -160,000 3 -120,000 -160,000 4 -120,000 -160,000 5 -20,000 -160,000 What is the IRR of each alternative? The IRR of alternative 1 is -Select-undefined 5% 7% 9% Item 1 . The IRR of…The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives are (1) a conveyor system with a high initial cost but low annual operating costs and (2) several forklift trucks, which cost less but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 6%, and the projects' expected net costs are listed in the following table: a. What is the IRR of each alternative? The IRR of alternative 1 is -Select- Alternative 2: $ Which method should be chosen? The IRR of alternative 2 is -Select- b. What is the present value of costs of each alternative? Do not round intermediate calculations. Round your answers to the nearest dollar. Use a minus sign to enter negative values, if any. Alternative 1: $ -Select- Year 0 1 2 3 4 5 should be chosen. Expected…